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Reliance on cash costs underserved consumers more

WASHINGTON (8/12/14)--Using cash for financial transactions costs more time and more money for America's underbanked and unbanked consumers, according to a recent report from the Center for Financial Services Innovation (CFSI).

CFSI released the Massachusetts Institute of Technology research, "The Technology to Advance Equal Financial Opportunity," which looked at noncash payments such as payroll cards, mobile payments or prepaid cards.

"There is a high cost of living without access to high-quality financial services," said Jeanne Hogarth, CFSI vice president of policy. The Federal Deposit Insurance Corp. estimates about 30% of Americans and up to 50% of Latino and African-American households use cash for the majority of their financial transactions.

The report cited the work of Latino Community CU, Durham, N.C., with $144 million in assets, of serving the unbanked. More than three-quarters of its members were previously unbanked and had never had any relationship with financial institutions prior to becoming a member.

The MIT study also noted El Paso (Texas) Credit Union for Affordable Housing (EPCUAH) credit union service organization, which provides thorough financial education as it integrates consumers into the financial mainstream. EPCUAH also looks at rent and utility payment histories to assess delinquencies that more often than not were due to extenuating circumstances such as unemployment or medical emergencies. Once those trials passed, most households returned to on-time payments, EPCUAH found.

Among the report's findings:

Unbanked or underbanked consumers expend more time cashing checks and making payments, spend more money on fees, have limited access to goods and services, and are more vulnerable to crime. While the average adult spends 28 minutes per month accessing cash, or 5.6 hours per year, the unbanked are 50% more likely to pay higher time-costs for cash access. "Unfortunately, low-income individuals and communities have the most to lose because they can least afford the time, money, and vulnerability associated with the cash economy," the report noted.

Being included in the financial environment now doesn't require a relationship with a traditional financial institution. Cash-loaded cards such as prepaid debit cards, payroll cards or public benefit cards reduce the need to be an accountholder. "Advances in technology allow consumers to access financial services with greater convenience and confidence--without being required to navigate mainstream financial institutions," said the report.

Digital payment technology can reduce the amount of time the unbanked or underbanked spend performing financial transactions. Receiving payments, paying bills and transferring funds electronically reduces fees and lessens the risk of theft.

Community institutions such as credit unions can help overcome the cultural, financial and logistical barriers perceived by the underserved populations. "Products, services and educational resources can all be developed and tailored to provide the greatest benefit and value to the financially underserved when communities, nonprofits, and businesses work together," the report said.